Canada: Consumer price inflation beat expectations in March | Business and Economics News
Annual inflation hit 6.7% last month, down from 5.7% in February, Statistics Canada reported on Wednesday.
Consumer price inflation in Canada beat expectations in March, hitting a new three-decade high and bolstering expectations that the Bank of Canada will continue its aggressive interest rate hikes in the weeks ahead.
Annual inflation hit 6.7% last month, up from 5.7% in February, Statistics Canada reported Wednesday in Ottawa. That’s the highest since January 1991 and tops the median estimate of 6.1% in a Bloomberg survey of economists.
The report shows higher inflationary pressures than the central bank estimated last week, adding pressure on policymakers led by Governor Tiff Macklem to withdraw stimulus from an overheated economy. Investors see a strong likelihood of a second half-percentage-point hike at its next meeting, after officials announced a giant hike last week.
“Today’s inflation surprise significantly increases the odds that we will see another 50 basis point hike in June,” Royal Bank of Canada economist Josh Nye said in an interview with BNN Bloomberg. Television. “The market was starting to lean in that direction and I think that will only add to that.”
Bonds were hit hard. The Government of Canada benchmark two-year yield climbed to almost 2.56% – the highest since October 2008 – from around 2.52% before the release. The 10-year rate rose above 2.8%.
Prices rose 1.4% in March alone, the largest one-month increase since the country introduced a federal sales tax in 1991.
The reading may represent the peak of soaring annual price gains, capturing the impact of soaring food and energy prices following Russia’s invasion of Ukraine. Still, the return to anything resembling normal is likely to drag on and that is a concern for policymakers trying to keep inflation expectations from hardening to current levels.
And while gasoline prices were the main contributor to the monthly and annual price rise, inflation became widespread with sharp increases in housing, food and car costs. The average of the central bank’s core measures – often seen as a better indicator of underlying price pressures – hit 3.77%, also the highest since 1991.
Goods inflation hit 9.2% in March, the highest since 1982. Services inflation hit 4.3%, the highest since 2003.
Macklem and his officials expect inflation to slow to an average of 4.5% by the fourth quarter of this year. Inflation averaged 5.8% in the first quarter, compared to 5.6% according to Bank of Canada estimates.
On a seasonally adjusted basis, prices jumped 0.9% in March to a record high. Gasoline prices rose 12% in the month and 40% from a year earlier. Food prices rose 7.7% from a year earlier, following a 0.9% gain in March. Grocery prices increased by 8.7% on an annual basis.
(Updates with market and economist reaction)
–With the help of Erik Hertzberg.